Generally speaking long term investing is the way to go. But unfortunately, some companies simply don't succeed. For example, after five long years the Dawnrays Pharmaceutical (Holdings) Limited (HKG:2348) share price is a whole 72% lower. That is extremely sub-optimal, to say the least. We also note that the stock has performed poorly over the last year, with the share price down 38%. The good news is that the stock is up 3.4% in the last week.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Looking back five years, both Dawnrays Pharmaceutical (Holdings)'s share price and EPS declined; the latter at a rate of 1.2% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 23% per year, over the period. This implies that the market is more cautious about the business these days. The low P/E ratio of 5.15 further reflects this reticence.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Dawnrays Pharmaceutical (Holdings)'s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Dawnrays Pharmaceutical (Holdings)'s TSR for the last 5 years was -65%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While the broader market gained around 8.1% in the last year, Dawnrays Pharmaceutical (Holdings) shareholders lost 34% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Dawnrays Pharmaceutical (Holdings) better, we need to consider many other factors. For instance, we've identified 2 warning signs for Dawnrays Pharmaceutical (Holdings) (1 is significant) that you should be aware of.
Dawnrays Pharmaceutical (Holdings) is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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